INDEX OF SERVICE PRODUCTION (ISP)

1. INDEX OF SERVICE PRODUCTION (ISP) Presentation 2009-09-14/15 Daniel Lennartsson Statistics Sweden daniel.lennartsson@scb.se

2. Growth of service sector(Share of GDP for different sectors)

3. 16 14 12 10 8 GDP 01-45 6 50-95 4 2 0 -2 1993K1 1994K1 1995K1 1996K1 1997K1 1998K1 1999K1 2000K1 2001K1 2002K1 2003K1 2004K1 2005K1 2006K1 2007K1 -4 Service sector and GDP

4. Swedish investigation about the economic statistics 2002 The users of statistics want statistics for the growing private service sector The users want short term indicators, similiar indicators to those in the manufacturing sector. Production (volume) index, new orders, prices, turnover and capacity) The department of Econcomic Statistics was given about 600 thousand Euro / year to produce new indicators. Most of this amonth are used to produce a index of service production (ISP) and turnover statistics on a monthly basis.

5. Project plan with purpose to develop a production (volume) index for the service sector on a monthly basis Starting points and Conditions -OECD manual -Great Britain’s index of services -National Accounts -Discussions with producers and users of economic statistics Goals -Set a design to produce an index of service production -Publish the first result spring 2008. -Timeliness 35 days after the end of the reference month

6. Volume index in the service sector The theoritical form of an index of production is a volume index of Laspeyres type Where q is produced quantity p is price of produced quantity δ is quantity for consumption a is price of quantity for consumption i is one of the produced quantities j is one of the quantities for consumption 0 is the base period t is the present period

7. Production index in the service sector Qt is just a theoretical index and can not be calculated in practice. Instead consider it as a value added index. According to the theory of value added index the index should be calculated as deflated production value minus deflated consumption value. To calculate (deflated) value added on monthly basis is very difficult. Instead use some other output as a proxy for value added. We use deflated turnover for each activity as a proxy. To produce index of production we also need to weight the activities together up to aggregates

8. How to calculate the production index in practice • Weight (wb)is • When applicate base years weights, the index of production by time t can then be given by

9. The main components to construct an index of production • Output (Turnover) • Deflators • Weights ----------------------------------------------------- • Trading Day effects • Seasonal adjustment

10. Turnover • Sampled based survey on a monthly basis • Coverage NACE 45 -96 excl. 64-66 • Low cut off threshold (> 20 000 Euro / year) • The sampling frame is stratified by activity and size (128 *6) • Total sample size is 7 000 enterprises on monthly basis and 6 000 on quarterly basis

11. Deflators Best deflator: Service producers price indicies (SPPI) • Only produced on quarterly basis • Forecasting of SPPI is done for the present month by a forecasting model, exponential smoothing Other deflators: Consumer price index (CPI), wage index (WI), producer price index in industry (IPPI), import price index (IMPI) – all indicies are produced on monthly basis

12. List of deflators – per NACE Rev 1.1 ISP for quarter 20071 compared to 20061, constant prices in 20061 Nace Def Prel Diff (%) Priceindex Periodicity 50 104,2 104,2 0,0 CPI Month 51 104,3 104,3 0,0 IPPI Month 52 106,3 106,3 0,0 CPI Month 55 105,9 106,7 -0,8 SPPI, CPI Qrt, Month 60 103,5 103,5 0,1 SPPI, CPI Qrt, Month 61 93,8 92,3 1,6 SPPI Qrt 62 101,4 103,8 -2,4 SPPI Qrt 63 106,8 106,6 0,2 SPPI, CPI Qrt, Month 64 108,0 108,0 0,1 SPPI Qrt 70 99,1 99,1 0,0 SPPI, CPI Qrt, Month 71 111,0 111,0 0,0 SPPI, IPPI Qrt, Month 72 108,5 109,1 -0,6 SPPI Qrt 73 86,0 86,0 0,0 SPPI, IMPI Month 74 111,0 111,5 -0,5 SPPI Qrt, Month 80 104,1 104,1 0,0 CPI, WI Month 85 110,1 110,1 0,0 CPI, WI Month 90 110,0 110,0 0,0 SPPI Qrt 91 115,0 115,0 0,0 WI Month 92 100,3 100,3 0,0 CPI, WI Month 93 101,5 101,5 0,0 CPI Month Total 105,4 105,6 -0,2

13. Weights • Value added weights • Aggregates from national accounts • Details from SBS survey • Yearly weights • The weights updates every year (small changes though)

14. Trading day effects and seasonal adjustment • Estimation of trading day effects - Regression model, based on time series data (Major part of activities) - Expert group estimating trading day effects (Retail Trade) - It’s very difficult to adjust for trading day effects in an accurate way!! • Seasonal adjustment of the index serie - No seasonal adjustment at the moment - Seasonal adjustment will start in a near future

15. Results, total ISP Index present month compared to same month previous year

16. Results, ISP compared to IIP Index present month compared to same month previous year

17. Dissemination • Monthly publishing - Timeliness, 35 days after reference month - Press release (webpage) - Statistical databases • Monthly index revised each quarter due to • Forecasted SPPI replaced by definite figures • Estimates of turnover based on a larger sample

18. Comparison with Index of industrial production (IIP) • Differences in the output (IIP: 70 percent turnover, 25 percent volumes, 5 percent nr of working hours. ISP: 100 percent turnover) • IIP has high cut-off threshold (>10 employees) • IIP has best deflators (priceindex on monthly basis) • Same source for calculating yearly weights (National accounts plus SBS) • Same method to calculate index series, chain index, base year changes every year, reference year = 2005. • IIP has seasonal adjusted series • About the same timeliness (35-40 days after reference month) • In the future an index of production for the whole private sector